Owning your own business can add an extra layer of complexity to your estate planning. One such detail is the question of whether you should have a separate power of attorney for your business as compared to the balance of your assets.
A power of attorney for property is a document that appoints a substitute decision maker who is referred to as your attorney for property. The attorney you appoint is able to step into your shoes, and make decisions on your behalf, in the same way that you could make them yourself. The power of attorney only confers authority while you are still living. Once you die, the attorney has no authority. A common misconception, due to the use of the word “attorney”, is that the document confers this authority on your lawyer. This is untrue. In this context, the word “attorney” refers to the substitute decision maker you have appointed in the document (whoever that may be).
In a standard estate planning scenario, it is common for individuals to have a single power of attorney document that appoints one or more substitute decision makers (attorneys) to make decisions about the grantor’s assets and finances. For example, your attorney for property, in a standard scenario, might be able to pay your bills, sell your house, invest your funds on your behalf, and file your taxes for you. The goal when setting up a power of attorney, is to ensure that if you lose capacity in the future, somebody else (your attorney for property) can make decisions on your behalf.
If you are a small business owner, your incapacity is likely to cause difficulty for the business. This is especially true if, for example, your signature is required to transact on all the business accounts. If you and your family are relying upon this business for your income, you will want to ensure that it continues running during your incapacity. Additionally, depending on what type of business it is, you may have professional obligations to meet regarding the wind up or transition of your business if you become incapable.
If you have just one power of attorney for property document (as is common in the standard scenario) it likely provides the appointed attorney for property with decision-making authority over all financial matters in your life. This would include your business. Consider whether the person you appoint to manage your personal affairs while you are incapable should be the same person who should run your business and organize your professional affairs.
Perhaps you have a business partner who is better suited to step in and run the business on your behalf. Perhaps you are a member of a regulated profession, such as lawyers, and as a result you are subject to rules regarding the transition of your business and who is allowed to take charge of same. In these types of situations, it is sometimes advisable for a business owner to execute two powers of attorney. One power of attorney will appoint a substitute decision-maker solely for the business, and the other power of attorney document will appoint a substitute decision-maker for the balance of your assets and finances. This allows for a division of decision-making authority.
If you decide that multiple powers of attorney are right for you, there are many factors to consider when selecting the appropriate attorney for property. Some of these factors include:
- Does the person you wish to appoint have any conflict of interest? For example, if you wish to appoint your business partner, does that person have any incentive to operate the business in such a way that would benefit themselves more than you?
- Will the appointed attorneys for property for your business and for your personal affairs be able to communicate and deal with each other, without conflict? Although they will have separate authority over separate assets, they will both have an obligation to act in your best interest and they will likely need to communicate and work together, to some extent.
- Does the person you wish to appoint in your power of attorney over your business actually have the ability, either practically or legally, to run the business? For example, only lawyers licensed by the Law Society of Ontario are able to practice law in Ontario. So, appointing a non-lawyer to manage your law practice during your in capacity would be inappropriate.
This article presents a high-level overview of several factors to consider when planning for the in capacity of a business owner. Every person’s individual situation may be different, and nuanced, and you should obtain specific legal advice about your situation before making any decisions.